A financial blog on investing in stocks, commodities and the gold bull market.

Sunday, July 12, 2009

The blame game

Now that we are firmly entrenched in what I believe will be the next Great Depression we are starting to see the inevitable blame game as everyone wants to shift the blame for whats happening to the global economy onto some third party. I've been guilty to some extent myself by blaming the Fed.

While Greenspan and Bernanke certainly share a good bit of the load for the troubles we are in it's hardly their fault alone.

The real blame should fall squarely on human nature.

On average the world goes through a depression about every 70-80 years. Why you ask? Because about every 70 years we create a credit bubble.

Let's face it we all want more than we have. All humans are greedy, that's just human nature. Greed isn't reserved for just Wall Street bankers. Were home owners, who lied about their income so they could buy a bigger house than they could actually afford, any less greedy than a banker at Bear Stearns? Was anyone who used their house like an ATM so they could buy a new hummer and big screen TV every year any less greedy than Bernie Madoff? Granted you didn't take advantage of anyone and you certainly didn't destroy someones future. However we are all one piece in the big picture so in that context yes you did your part to create the mess we're in, even though it might not have been as big a part as Madoff's)

How about all the traders out there right now, are you not motivated by greed? Does anyone not believe for a second that every single one of us started trading because it seemed like an easy way to make money and get rich?

How about all of you who are right now leveraging up either in mining stocks or shorts in an attempt to "get rich quick". Can any of you honestly look in the mirror and not have to admit that you are just as greedy as the next person.

So when I hear this crap about how it was the greedy bankers that got us into this mess I say BS! It was human nature nothing more.

Human nature had simply run it's course from the last cycle, which bottomed as the depression ended and WWII started.

The excess debt had been purged from the system and the global economy was set to rise anew.

It took about 80 years but eventually almost everyone from that generation passed away clearing the way for humanity to make the same mistake again. The laws that were put in places in the 30's to avoid just this kind of thing from happening again were repealed, paving the way for the next period of great excess in human history.

We certainly wasted no time reaching those lofty heights of stupidity either. First it was the tech bubble. Stocks trading at P/E's in the hundreds. Many stocks had never even earned a dime and had no real possibility of ever making any profit. Any one with a lick of common sense could have seen that one coming from a mile away. However all the commonsense in the world isn't going to stop greed from telling you, "everyone else is getting rich, I want mine".

When that bubble popped in stepped Greenspan with an even bigger round of easy money and lo and behold the rise of the housing bubble. Investors had apparently learned nothing from the tech bubble. They immediately piled into the real estate market. Again anyone with a lick of commonsense saw this one coming. But if there is anything we humans can depend on it's a lack of commonsense when we think we've discovered a sure thing.

Of course right along with the real estate bubble the credit bubble was expanding to dimensions the world had never seen before. Again not wanting to get left behind the banks started leveraging up to unheard of levels.

Now we've reached the end of an unsustainable expansion in credit. The house of cards is crashing down. And it has to implode in order for a new beginning to start.

All those trillions of dollars of debt that have been built up over the last 80 years need to be purged from the system. Until this is allowed to complete we are going remain entrenched in tough times, times that will just continue to get worse.

Unfortunately Obama is trying to cure our debt problem with more debt. Instead of helping the problem he is making it bigger. Roosevelt tried the same approach during the last credit implosion and instead of solving the problem he extended it much longer than it needed to be. In 39 unemployment was still hovering around 20%.

Unless the powers that be come to their senses we are going to be mired in this mess for years to come

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Technical trading rules

T1. A move followed by a sideways range often precedes another move of almost equal extent in the same direction as the original move. Generally, when the second move from the sideways range has run its course, a counter move approaching the sideways range may be expected. T2. Reversal or resistance to a move is likely to be encountered: - 0n reaching levels at which in the past, the commodity has fluctuated for a considerable length of time within a narrow range - On approaching highs or lows T3. Watch for good buying or selling opportunities when trend lines are approached, especially on medium or dull volume. Be sure such a line has not been hugged or hit too frequently. T4. Watch for "crawling along" or repeated bumping of minor or major trend lines and prepare to see such trend lines broken. T5. Breaking of minor trend lines counter to the major trend gives most other important position taking signals. Positions can be taken or reversed on stop at such places. T6. Triangles of ether slope may mean either accumulation or distribution depending on other considerations although triangles are usually broken on the flat side. T7. Watch for volume climax, especially after a long move. T8. Don't count on gaps being closed unless you can distinguish between breakaway gaps, normal gaps and exhaustion gaps. T9. During a move, take or increase positions in the direction of the move at the market the morning following any one-day reversal, however slight the reversal may be, especially if volume declines on the reversal.

General Trading rules

G1. Beware of acting immediately on a widespread public opinion. Even if correct, it will usually delay the move. G2. From a period of dullness and inactivity, watch for and prepare to follow a move in the direction in which volume increases. G3. Limit losses and ride profits, irrespective of all other rules.G4. Light commitments are advisable when market position is not certain. Clearly defined moves are signaled frequently enough to make life interesting and concentration on these moves will prevent unprofitable whip-sawing. G5. Seldom take a position in the direction of an immediately preceding three-day move. Wait for a one-day reversal.G6. Judicious use of stop orders is a valuable aid to profitable trading. Stops may be used to protect profits, to limit losses, and from certain formations such as triangular foci to take positions. Stop orders are apt to be more valuable and less treacherous if used in proper relation the the chart formation. G7. In a market in which upswings are likely to equal or exceed downswings, heavier position should be taken for the upswings for percentage reasons - a decline from 50 to 25 will net only 50% profit, whereas an advance from 25 to 50 will net 100%G8. In taking a position, price orders are allowable. In closing a position, use market orders." G9. Buy strong-acting, strong-background commodities and sell weak ones, subject to all other rules. G10. Moves in which rails lead or participate strongly are usually more worth following than moves in which rails lag.G11. A study of the capitalization of a company, the degree of activity of an issue, and whether an issue is a lethargic truck horse or a spirited race horse is fully as important as a study of statistical reports.

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Investing in the financial markets can involve considerable risk. Past performance is not necessarily an indication of future performance. The information included in The Smart Money Tracker and The SMT subscribers daily updates is prepared for educational purposes and is not a solicitation, or an offer to buy or sell any security or use any particular system. Information is based on historical research using data believed to be reliable, but there is no guarantee as to its accuracy. G.D.S L.L.C., nor Gary Savage, do not represent themselves as acting in the position of an investment adviser or investment manager for funds that are not under their direct control and fiduciary responsibility. GDS L.L.C., Gary Savage, will not provide you with personally tailored advice concerning the nature, potential, value or suitability of any particular security, portfolio or securities, transaction, investment strategy or other matter. From time to time, GDS L.L.C., Gary Savage, may hold positions in securities mentioned, but are under no obligation to hold such positions.